If Chicago Mercantile Exchange traders are betting right, housing prices in ten key housing markets will continue to drop until 2011 [subscription required], according to the Wall Street Journal this morning. The Miami area is the worst hit and expectations are that it will drop another 27.9% between November 2007 and November 2011. Others expected to fall in the same time period include San Francisco (down 25.9%), San Diego (down 18.6%) Las Vegas (down 18.1%), Los Angeles (down 15%), Denver (down 14.4%), Boston (13.8%), Washington, D.C. (down 13.3%), New York (12.1%) and Chicago (down 6.6%).
The CME contracts are based on expected movements of the S&P/Case-Shiller house price indexes. Trading is light, so this report gives us a less-than-scientific view of what might happen in the housing market. Personally. I believe this might be too gloomy a prediction. While prices do still need to drop in most of the areas currently facing a decline in order to get the markets moving again, I'm not sure they need to drop as much, nor for as long.
The big problem is most homeowners can't afford to go much lower than they already have and still be able to pay off their mortgages. Many who must move are being faced with the idea of coming up with cash at closing rather than taking home a check. The only figures I can go by is what I've seen in my neighborhood in Florida. Currently there are 245 houses on the market and they're selling at an average of 8 houses per month. If that trend continues, it will take 30 months to clear out that backlog. People who need to get out are dropping their prices even more.
If you are trying to sell, have realistic expectation for your neighborhood. Ask a local real estate agent to give you a list of recent solds and the price at which the houses sold. Decide if you can go that low, and if not, find a way to hold on to the house, which might mean renting it.
Lita Epstein is the author of 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Working After Retirement for Dummies."
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